"In 2019, we were tasked by our German partner to explore opportunities for a Chinese investor or strategic partner to acquire a German steel pipe company. The steel pipe company, with a legacy spanning over a century, boasted more than 100 employees and operated five production lines with an annual capacity of 75,000 tons. Although its production volume wasn't extensive, its commitment to quality was unwavering, specializing in high-precision steel pipes, pipeline steel pipes, sectional pipes, and grooved coil pipes."
The Challenge
In 2019, the company encountered significant setbacks. Tariffs imposed by the United States on steel and iron imports from Europe resulted in the loss of their primary export market. Concurrently, a general downturn in the European market pushed the company to the brink of insolvency. Desperate for a solution, they sought a Chinese investor or partner to help sustain operations in Europe or explore sales opportunities in China. The unrestricted bid deadline was set for January 15, 2020.
Taking Action
We reached out to 12 steel pipe manufacturing companies across North China, East China, and South China. Unfortunately, none were willing or able to pursue overseas acquisitions. The prevailing economic downturn in 2019 and tightened controls over foreign exchange outflows for private enterprises were cited as primary deterrents. For instance, major players in Tianjin Dahouzhuang were either undergoing structural reforms or preparing for IPO, rendering them unable to consider overseas ventures. Responses from other regions echoed similar sentiments, with some companies grappling with poor performance due to external factors and others lacking plans for overseas expansion.
Key Insights
This case study offers several valuable insights. Firstly, in times of global economic downturn, companies tend to adopt conservative or self-rescue strategies, resulting in a slowdown or cessation of overseas investments. It underscores the importance of assessing the macroeconomic environment before investing overseas.
Secondly, proactive risk assessment and preparation are vital for business resilience. The German steel pipe company's failure to anticipate and prepare for the impact of tariffs left them scrambling for solutions when the crisis hit. For companies, establishing a shortlist of potential overseas customers within their capabilities can provide a roadmap for crisis management.
Lastly, diversifying into new regions or countries early on can mitigate risks associated with over-reliance on existing markets for companies already operating in foreign markets. Failure to explore new markets may lead to outcomes akin to the "German steel company."
Conclusion
In conclusion, navigating overseas investments requires careful consideration and strategic planning, especially in challenging economic environments. By learning from the experiences of others, companies can better position themselves for success in the global marketplace.
